Economy Lost Another 900,000 Jobs in 'Recovery of Downward Revisions'

Do do that voodoo that you do so well – "You do Something to Me," by Cole Porter

Brace yourself: The good folks over at the Bureau of Labor Statistics are about to do that voodoo that they do so well.

Unemployment

Next Friday’s monthly jobless report will include preliminary revision estimates for the benchmark it uses to calculate the unemployment rate. If indications hold up, the revisions will show that the economy actually lost 902,000 more jobs in 2009 than actually had been reported, according to calculations from Bank of America Merrill Lynch Global Research. Ouch.

So how does this all work?

The BS that the BLS uses to calculate unemployment can give even the nerdiest pencil-pushing pocket-protector-wearing economist a migraine.

Benchmarks provide the bureau a basis point from which to make all the estimates and calculations that go into figuring out the unemployment rate.

It the heart of this voodoo is the bureau’s “birth-death” model, which uses a survey to estimate the amount of businesses created versus the amount that failed. Because the data is based on lagging trends, the bureau usually underestimates the amount of businesses that failed at the start of recessions and the amount created during expansions.

Hence, the model likely painted a bit rosier economic picture back when we were falling off a cliff in 2009, thus resulting in a distorted jobs picture.

The bright side: When (if?) the recovery comes we’ll probably see an upward revision of employment. Until then, call it, as BofAML does, the “recovery of downward revisions.”

The firm expects unemployment to keep rising, in fact, pushing the monthly rate above 10 percent, giving rise to another batch of quantitative easing from the Fed.

“We remain of the view that there is unlikely to be a material improvement in the employment data between now and the second half of next year,” economists Michelle Meyer and Neil Dutta tell clients. “The economy will manage to cobble together employment gains but not enough to keep the unemployment rate from rising.”

Something else to consider: A low-profile unemployment gauge called “mass layoffs,” while having peaked in March 2009, provides yet another example of stress in the jobs market.

The BLS says there were 1,546 such “events” in August during which companies laid off at least 50 workers.

That’s actually a decline in “events” of 63 from July, but resulted in a 6,489 more layoffs.

Temp services took it the worst but schools were second, indicating cuts in education budgets.